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Item 7. Management’s Discussion and Analysis

2025-02-11 compared with 2024-02-12 · 301 added, 335 removed, 557 unchanged (53% of the section changed)

13 unchanged sentences

EXECUTIVE SUMMARY AND FINANCIAL HIGHLIGHTS

We are a global power leader that designs, manufactures, distributes and services diesel, natural gas, electric and hybrid powertrains and powertrain-related components including filtration, aftertreatment, turbochargers, fuel systems, valvetrain technologies, controls systems, air handling systems, automated transmissions, axles, drivelines, brakes, suspension systems, electric power generation systems, batteries, electrified power systems, hydrogen production technologies and fuel cell products.

We are a global power solutions leader comprised of five business segments - Engine, Components, Distribution, Power Systems and Accelera - supported by our global manufacturing and extensive service and support network, skilled workforce and vast technical expertise.

Our products range from advanced diesel, natural gas, electric and hybrid powertrains and powertrain-related components including aftertreatment, turbochargers, fuel systems, valvetrain technologies, controls systems, air handling systems, automated transmissions, axles, drivelines, brakes, suspension systems, electric power generation systems, electrified power systems with innovative components and subsystems, including battery, fuel cell and electric power technologies and hydrogen production technologies.

We sell our products to original equipment manufacturers (OEMs), distributors, dealers and other customers worldwide.

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We serve our customers through a service network of approximately 650 wholly-owned, joint venture and independent distributor locations and more than 19,000 Cummins certified dealer locations in approximately 190 countries and territories.

As previously announced, beginning in the first quarter of 2023, we realigned certain businesses and regions within our reportable segments to be consistent with how our segment managers monitor the performance of our segments.

We reorganized the businesses within our Components segment to carve out the electronics business into the newly formed software and electronics business and combined the turbo technologies and fuel systems businesses into the newly formed engine components business.

On May 26, 2023, with the Atmus Filtration Technologies Inc.

(Atmus) initial public offering (IPO), we changed the name of our Components' filtration business to Atmus.

Our Components segment now consists of the following businesses:

axles and brakes, emission solutions, engine components, Atmus, automated transmissions and software and electronics.

In the first quarter of 2023, as a result of the indefinite suspension of operations in Russia, we reorganized the regional management structure of our Distribution segment and moved all Commonwealth of Independent States (CIS) sales into the Europe and Africa and Middle East regions.

The Russian portion of prior period CIS sales moved to the Europe region.

In March 2023, we rebranded our New Power segment as "Accelera" to better represent our commitment to zero-emission technologies.

In addition, we moved our NPROXX joint venture from the Accelera segment to the Engine segment, which adjusted both the equity, royalty and interest income (loss) from investees and segment EBITDA (defined as earnings or losses before interest expense, income taxes, depreciation, amortization and noncontrolling interests) line items for the prior years.

We started to report results for the changes within our operating segments effective January 1, 2023, and reflected these changes in the historical periods presented.

See NOTE 23, "FORMATION OF ATMUS AND IPO," to our Consolidated Financial Statements for additional information about the Atmus IPO.

Our reportable operating segments consist of Components, Engine, Distribution, Power Systems and Accelera.

This reporting structure is organized according to the products and markets each segment serves.

The Components segment sells axles, drivelines, brakes and suspension systems for commercial diesel and natural gas applications, aftertreatment systems, turbochargers, fuel systems, valvetrain technologies, filtration products, automated transmissions and electronics.

Our segment reporting structure is organized according to the products and markets each segment serves.

The Engine segment produces engines (15 liters and smaller) and associated parts for sale to customers in on-highway and various off-highway markets.

Our engines are used in trucks of all sizes, buses and recreational vehicles, as well as in various industrial applications, including construction, agriculture, power generation systems and other off-highway applications.

The Distribution segment includes wholly-owned and partially-owned distributorships engaged in wholesaling engines, generator sets and service parts, as well as performing service and repair activities on our products and maintaining relationships with various OEMs throughout the world.

The Power Systems segment is an integrated power provider, which designs, manufactures and sells engines (16 liters and larger) for industrial applications (including mining, oil and gas, marine and rail), standby and prime power generator sets, alternators and other power components.

The Accelera segment designs, manufactures, sells and supports hydrogen production technologies as well as electrified power systems with innovative components and subsystems, including battery, fuel cell and electric powertrain technologies.

The Accelera segment is currently in the early stages of commercializing these technologies with efforts primarily focused on the development of our electrolyzers for hydrogen production and electrified power systems and related components and subsystems.

The Distribution segment includes wholly-owned and partially-owned distributorships engaged in wholesaling engines, generator sets and service parts, as well as performing service and repair activities on our products, maintaining relationships with various OEMs throughout the world and providing selected sales and aftermarket support for our Accelera business.

The Power Systems segment is an integrated power provider, which designs, manufactures and sells standby and prime power generators, engines (16 liters and larger) for standby and prime power generator sets and industrial applications (including mining, oil and gas, marine, rail and defense), alternators and other power components.

The Accelera segment designs, manufactures, sells and supports electrified power systems with innovative components and subsystems, including battery, fuel cell and electric powertrain technologies as well as hydrogen production technologies.

The Accelera segment is currently in the early stages of commercializing these technologies with efforts primarily focused on the development of electrified power systems and related components and subsystems and our electrolyzers for hydrogen production.

We continue to serve all our markets as they adopt electrification and alternative power technologies, meeting the needs of our OEM partners and end customers.

Our financial performance depends, in large part, on varying conditions in the markets we serve, particularly the on-highway, construction and general industrial markets.

Our financial performance depends, in large part, on varying conditions in the markets we serve, particularly the on-highway, off-highway, power generation and general industrial markets.

Demand in these markets tends to fluctuate in response to overall economic conditions.

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As a worldwide business, our operations are also affected by geopolitical risks, currency fluctuations, political and economic uncertainty, public health crises (epidemics or pandemics) and regulatory matters, including adoption and enforcement of environmental and emission standards, in the countries we serve.

As part of our growth strategy, we invest in businesses in certain countries that carry higher levels of these risks such as China, Brazil, India, Mexico and countries in the Middle East and Africa.

As part of our growth strategy, we invest in businesses in certain countries that carry higher levels of these risks such as China, Brazil, India, Mexico and other countries in Europe, the Middle East and Africa.

At the same time, our geographic diversity and broad product and service offerings have helped limit the impact from a drop in demand in any one industry, region, the economy of any single country or customer on our consolidated results.

Agreement in Principle

Accelera Strategic Reorganization Actions

In the fourth quarter of 2024, our Accelera segment underwent a strategic review to better streamline operations as well as pace and re-focus investments on the most promising paths as the adoption of certain zero emission solutions slows.

This review resulted in decisions to consolidate certain manufacturing efforts, focus internal development efforts towards areas of differentiation while continuing to leverage partners and reduce our investments in certain technologies, joint ventures and markets.

In addition, declining customer demand in certain key product lines caused us to re-evaluate the recoverability of certain inventory items.

As a result of these actions, we recorded several charges in the fourth quarter related to inventory write-downs, intangible and fixed asset impairments and joint venture impairments.

Total charges for these strategic reorganization actions were $312 million.

See NOTE 22, "ACCELERA STRATEGIC REORGANIZATION ACTIONS," to our Consolidated Financial Statements for additional information.

Divestiture of Atmus

On March 18, 2024, we completed the divestiture of our remaining 80.5 percent ownership of Atmus Filtration Technologies Inc.

(Atmus) common stock through a tax-free split-off.

The exchange resulted in a reduction of shares of our common stock outstanding by 5.6 million shares and a gain of approximately $1.3 billion.

See NOTE 21, "ATMUS INITIAL PUBLIC OFFERING (IPO) AND DIVESTITURE," to our Consolidated Financial Statements for additional information.

Settlement Agreements

In December 2023, we announced that we reached an agreement in principle with the U.S.

Environmental Protection Agency (EPA), the California Air Resources Board (CARB), the Environmental and Natural Resources Division of the U.S.

Department of Justice (DOJ) and the California Attorney General’s Office (CA AG) to resolve certain regulatory civil claims regarding our emissions certification and compliance process for certain engines primarily used in pick-up truck applications in the U.S.

(collectively, the Agreement in Principle).

As part of the Agreement in Principle, among other things, we agreed to pay civil penalties, complete recall requirements, undertake mitigation projects, provide extended warranties, undertake certain testing, take certain corporate compliance measures and make certain payments.

Failure to comply with the terms and conditions of the Agreement in Principle will subject us to further stipulated penalties.

We recorded a charge of $2.036 billion in the fourth quarter of 2023 to resolve the matters addressed by the Agreement in Principle involving approximately one million of our pick-up truck applications in the U.S.

This charge was in addition to the previously announced charges of $59 million for the recalls of model years 2013 through 2018 RAM 2500 and 3500 trucks and model years 2016 through 2019 Titan trucks.

Of this amount, $1.938 billion relates to payments that are expected to be made in 2024.

See NOTE 2, "AGREEMENT IN PRINCIPLE," to our Consolidated Financial Statements for additional information.

Department of Justice (DOJ) and the California Attorney General’s Office to resolve certain regulatory civil claims regarding our emissions certification and compliance process for certain engines primarily used in pick-up truck applications in the U.S., which became final and effective in April 2024 (collectively, the Settlement Agreements).

We recorded a charge of $2.0 billion in the fourth quarter of 2023 to resolve the matters addressed by the Settlement Agreements involving approximately one million of our pick-up truck applications in the U.S.

In the second quarter of 2024, we made $1.9 billion of payments required by the Settlement Agreements.

See NOTE 14, "COMMITMENTS AND CONTINGENCIES," to our Consolidated Financial Statements for additional information.

A summary of our results is as follows:

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Diluted 28.37 5.15 15.12

Worldwide revenues improved 21 percent in 2023 compared to 2022, due to increased axles and brakes sales in the Components segment of $2.9 billion from the Meritor acquisition on August 3, 2022, and higher demand in all operating segments and most geographic regions, partially offset by the decrease in Russian sales due to the indefinite suspension of our Russian operations in March 2022.

(1) Net income and earnings per common share included the $1.3 billion non-taxable gain associated with the divestiture of Atmus for the year ended December 31, 2024.

See NOTE 21, "ATMUS INITIAL PUBLIC OFFERING (IPO) AND DIVESTITURE," to our Consolidated Financial Statements for additional information.

(2) Net income and earnings per common share included a $2.0 billion charge related to the Settlement Agreements for the year ended December 31, 2023.

See NOTE 14, "COMMITMENTS AND CONTINGENCIES," to our Consolidated Financial Statements for additional information.

Net income attributable to Cummins Inc.

for 2024 was $3.9 billion, or $28.37 per diluted share, on sales of $34.1 billion, compared to 2023 net income attributable to Cummins Inc.

of $0.7 billion, or $5.15 per diluted share, on sales of $34.1 billion.

The increases in net income attributable to Cummins Inc.

and earnings per diluted share were driven by the absence of the $2.0 billion charge related to the Settlement Agreements in 2023 and the $1.3 billion gain recognized on the divestiture of Atmus in 2024.

Diluted earnings per common share for 2024 benefited $0.87 per share from fewer weighted-average shares outstanding due to treasury shares reacquired in the Atmus divestiture.

The table below presents our consolidated net sales by geographic area based on the location of the customer:

Favorable/(Unfavorable)

Years ended December 31, 2024 vs.

2023 2023 vs.

In millions 2024 2023 2022 Amount Percent Amount Percent

United States and Canada $ 20,820 $ 20,650 $ 16,869 $ 170 1 % $ 3,781 22 %

International 13,282 13,415 11,205 (133) (1) % 2,210 20 %

Total net sales $ 34,102 $ 34,065 $ 28,074 $ 37 — % $ 5,991 21 %

Worldwide revenues were flat in 2024 compared to 2023, as increased global power generation demand (mostly data center markets) and higher demand in North American medium-duty truck and bus markets were offset by the divestiture of Atmus, lower emission solutions demand (mainly in China), lower demand in North American heavy-duty truck and pick-up truck markets and weaker demand in global construction markets.

Net sales in the U.S.

and Canada improved by 22 percent primarily due to incremental sales of axles and brakes,

increased demand in all Distribution product lines and stronger demand in heavy-duty and medium-duty truck markets, which positively impacted most Components businesses.

International demand (excludes the U.S.

and Canada) improved by 20 percent, with higher sales in most geographic regions, partially offset by a decrease in Russian sales due to the indefinite suspension of our operations in March 2022.

The increase in international sales was principally due to incremental sales of axles and brakes in Western Europe, Latin America, Asia Pacific and India and higher demand for power generation equipment.

Unfavorable foreign currency fluctuations impacted international sales by 1 percent (mainly the Chinese renminbi and Indian rupee, partially offset by the Euro).

The following table contains sales and EBITDA by operating segment for the years ended December 31, 2023, and 2022.

See NOTE 25, "OPERATING SEGMENTS," to the Consolidated Financial Statements for additional information and a reconciliation of our segment information to the corresponding amounts in our Consolidated Statements of Net Income .

and Canada improved by 1 percent primarily due to higher demand in power generation markets and medium-duty truck and bus markets, partially offset by the divestiture of Atmus and lower demand in North American pick-up truck and heavy-duty truck markets.

International sales (excludes the U.S.

and Canada) declined by 1 percent, primarily due to lower sales in China and Europe which were mostly offset with higher sales in Latin America and India.

The decrease in international sales was primarily due to the divestiture of Atmus and lower emission solutions demand (mainly in China), largely offset by increased demand in power generation markets (mainly Europe, China, Asia Pacific and India).

Unfavorable foreign currency fluctuations impacted international sales by 1 percent (mainly the Brazilian real and Chinese renminbi).

The following table contains sales and EBITDA (defined as earnings or losses before interest expense, income taxes, depreciation and amortization and noncontrolling interests) by operating segment for the years ended December 31, 2024 and 2023.

See NOTE 25, "OPERATING SEGMENTS," to our Consolidated Financial Statements for additional information and a reconciliation of our segment information to the corresponding amounts in our Consolidated Statements of Net Income .

Operating Segments

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In millions Sales EBITDA Sales EBITDA Sales EBITDA

Components $ 13,409 39 % $ 1,840 $ 9,736 34 % $ 1,346 38 % 37 %

Engine $ 11,712 28 % $ 1,653 $ 11,684 28 % $ 1,630 — % 1 %

Components 11,679 28 % 1,591 13,409 32 % 1,840 (13) % (14) %

Distribution 11,384 27 % 1,378 10,249 25 % 1,209 11 % 14 %

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Accelera 414 1 % (764) (1)

Intersegment eliminations (7,304) (21) % (2,055) (6,767) (24) % (232) 8 % NM

354 1 % (443) 17 % (72) %

Total segments 41,597 100 % 5,038 41,369 100 % 5,072 1 % (1) %

Intersegment eliminations (7,495) 1,288 (2)

(7,304) (2,055) (3)

Total $ 34,102 $ 6,326 (2)

$ 34,065 $ 3,017 (3)

(1) EBITDA includes $2.0 billion related to the Agreement in Principle and $100 million of costs associated with the IPO and separation of Atmus.

See NOTE 2, "AGREEMENT IN PRINCIPLE," to our Consolidated Financial Statements for additional information.

(2) EBITDA includes $111 million of costs associated with the indefinite suspension of our Russian operations, $83 million of costs related to the acquisition and integration of Meritor and $81 million of costs associated with the planned separation of Atmus.

See NOTE 22, "RUSSIAN OPERATIONS," to our Consolidated Financial Statements for additional information.

Net income attributable to Cummins Inc.

for 2023 was $735 million, or $5.15 per diluted share, on sales of $34.1 billion, compared to 2022 net income attributable to Cummins Inc.

of $2.2 billion, or $15.12 per diluted share, on sales of $28.1 billion.

The decreases in net income attributable to Cummins Inc.

and earnings per diluted share were driven by the $2.0 billion charge related to the Agreement in Principle and increased compensation expenses, partially offset by higher net sales and improved gross margins.

The increase in gross margin was mainly due to favorable pricing and higher volumes (including sales of axles and brakes from the Meritor acquisition), partially offset by higher compensation expenses.

"NM" - not meaningful information

(1) Accelera EBITDA included $312 million of strategic reorganization action charges in the fourth quarter of 2024.

See NOTE 22, "ACCELERA STRATEGIC REORGANIZATION ACTIONS," to our Consolidated Financial Statements for additional information.

(2) Intersegment eliminations and total EBITDA included a $1.3 billion gain recognized on the divestiture of Atmus, and total EBITDA included $35 million of costs associated with the divestiture of Atmus.

See NOTE 21, "ATMUS INITIAL PUBLIC OFFERING (IPO) AND DIVESTITURE," to our Consolidated Financial Statements for additional information.

(3) Intersegment eliminations and total EBITDA included a $2.0 billion charge related to the Settlement Agreements, and total EBITDA included $100 million of costs associated with the divestiture of Atmus.

See NOTE 14, "COMMITMENTS AND CONTINGENCIES," to our Consolidated Financial Statements for additional information.

2024 Highlights

We generated $1.5 billion of operating cash flows in 2024, compared to $4.0 billion in 2023.

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Our debt to capital ratio (total capital defined as debt plus equity) at December 31, 2024, was 38.4 percent, compared to 40.3 percent at December 31, 2023.

The decrease was primarily due to lower debt.

At December 31, 2023, we had $2.7 billion in cash and marketable securities on hand and access to our $4.0 billion credit facilities (net of commercial paper outstanding), if necessary, to meet acquisition, working capital, investment and funding needs.

On October 2, 2023, we repaid our $500 million senior notes, due 2023, using a combination of cash on hand and additional commercial paper borrowings.

On October 2, 2023, we purchased all of the equity ownership of Faurecia's U.S.

and Europe commercial vehicle exhaust business from the Forvia Group for $210 million, subject to final working capital and other adjustments.

See NOTE 24, "ACQUISITIONS," to the Consolidated Financial Statements for additional information.

In July 2023, the Board authorized an increase to our quarterly dividend of approximately 7 percent from $1.57 per share to $1.68 per share.

On June 29, 2023, a share purchase agreement was executed with the minority shareholders of Hydrogenics Corporation (Hydrogenics) whereby we agreed to pay the minority shareholders $335 million for their 19 percent ownership, including the settlement of shareholder loans of $48 million.

As part of the share purchase agreement, Hydrogenics entered into three non-interest-bearing promissory notes with $175 million paid on July 31, 2023, and the remaining $160 million due in three installments through 2025.

See NOTE 24, "ACQUISITIONS," to the Consolidated Financial Statements for additional information.

On June 5, 2023, we entered into an amended and restated 364-day credit agreement that allows us to borrow up to $2.0 billion of unsecured funds at any time prior to June 3, 2024.

This credit agreement amended and restated the prior $1.5 billion 364-day credit facility that was scheduled to mature on August 16, 2023.

In connection with the 364-day credit agreement, effective June 5, 2023, we terminated our $500 million incremental 364-day credit agreement dated August 17, 2022.

On May 23, 2023, in connection with the Atmus IPO, Cummins issued approximately $350 million of commercial paper with certain lenders.

On May 26, 2023, Atmus shares began trading on the New York Stock Exchange under the symbol "ATMU." The IPO was completed on May 30, 2023, whereby Cummins exchanged 19.5 percent (approximately 16 million shares) of its ownership in Atmus, at $19.50 per share, to retire $299 million of the commercial paper as proceeds from the offering through a non-cash transaction.

As we still own 80.5 percent of Atmus shares, it remains included in our Consolidated Financial Statements .

See NOTE 23, "FORMATION OF ATMUS AND IPO," to the Consolidated Financial Statements for additional information.

On April 3, 2023, we purchased all of the equity ownership interest of Teksid Hierro de Mexico, S.A.

(Teksid MX) and Teksid, Inc.

from Stellantis N.V.

for approximately $143 million, subject to certain adjustments set forth in the agreement.

See NOTE 24, "ACQUISITIONS," to the Consolidated Financial Statements for additional information.

The decrease was primarily due to the increased equity balance from stronger earnings since December 31, 2023, partially offset by higher debt balances at December 31, 2024.

At December 31, 2024, we had $2.3 billion in cash and marketable securities on hand and access to our $4.0 billion credit facilities (net of $1.3 billion commercial paper outstanding), if necessary, to meet working capital, investment, acquisition and funding needs.

In November 2024, we settled a portion of our interest rate swaps related to our 2025 and 2030 bonds with a combined notional amount of $135 million.

In the second and third quarters of 2024, we settled the remaining $500 million of interest rate swaps associated with the term loan, due in 2025, and repaid the outstanding balance of the term loan.

See NOTE 12, “DEBT,” and NOTE 20, "DERIVATIVES," to our Consolidated Financial Statements for additional information.

In July 2024, the Board of Directors (Board) authorized an increase to our quarterly dividend of approximately 8 percent from $1.68 per share to $1.82 per share.

On June 3, 2024, we entered into an amended and restated 5-year credit agreement that allows us to borrow up to $2.0 billion of unsecured funds at any time prior to June 3, 2029.

The credit agreement amended and restated the prior $2.0 billion 5-year credit agreement that would have matured on August 18, 2026.

We also entered into an amended and restated 364-day credit agreement that allows us to borrow up to $2.0 billion of unsecured funds at any time prior to June 2, 2025.

This credit agreement amended and restated the prior $2.0 billion 364-day credit facility that matured on June 3, 2024.

See NOTE 12, “DEBT,” to our Consolidated Financial Statements for additional information.

In May 2024, we entered into an accounts receivable sales agreement with Wells Fargo Bank, N.A., to sell certain accounts receivable up to $500 million.

See NOTE 1, "SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES," to our Consolidated Financial Statements for additional information.

In the second quarter of 2024, we made $1.9 billion of required payments towards the Settlement Agreements.

See NOTE 14, “COMMITMENTS AND CONTINGENCIES,” to our Consolidated Financial Statements for additional information.

On February 20, 2024, we issued $2.25 billion aggregate principal amount of senior unsecured notes consisting of $500 million aggregate principal amount of 4.90 percent senior unsecured notes due in 2029, $750 million aggregate principal amount of 5.15 percent senior unsecured notes due in 2034 and $1.0 billion aggregate principal amount of 5.45 percent senior unsecured notes due in 2054.

We received net proceeds of $2.2 billion.

See NOTE 12, "DEBT," to our Consolidated Financial Statements for additional information.

In 2024, the investment gain on our U.S.

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In addition, we expect our 2025 net periodic pension cost to approximate $76 million.

See application of critical accounting estimates within MD&A and NOTE 11, "PENSIONS AND OTHER POSTRETIREMENT BENEFITS," to the Consolidated Financial Statements , for additional information concerning our pension and other postretirement benefit plans.

As of the date of this filing, our credit ratings from Moody's Investor Services, Inc.

remain unchanged and the outlook remains stable, while Standard and Poor's Rating Services downgraded our long-term rating to A while our short-term rate remained at A1 and our outlook remained stable .

See "APPLICATION OF CRITICAL ACCOUNTING ESTIMATES" and NOTE 10, "PENSIONS AND OTHER POSTRETIREMENT BENEFITS," to our Consolidated Financial Statements for additional information concerning our pension and other postretirement benefit plans.

As of the date of this filing, our credit ratings and outlooks from the credit rating agencies remain unchanged.

RESULTS OF OPERATIONS

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Equity, royalty and interest income from investees 395 483 349 (88) (18) % 134 38 %

Other operating expense, net 2,138 174 31 (1,964) NM (143) NM

OPERATING INCOME 1,761 2,929 2,706 (1,168) (40) % 223 8 %

Other operating expense, net 346 2,138 174 1,792 84 % (1,964) NM

OPERATING INCOME 3,750 1,761 2,929 1,989 NM (1,168) (40) %

Interest expense 370 375 199 5 1 % (176) (88) %

Other income, net 240 89 156 151 NM (67) (43) %

INCOME BEFORE INCOME TAXES 1,626 2,819 2,751 (1,193) (42) % 68 2 %

Other income, net 1,523 240 89 1,283 NM 151 NM

INCOME BEFORE INCOME TAXES 4,903 1,626 2,819 3,277 NM (1,193) (42) %

Income tax expense 835 786 636 (49) (6) % (150) (24) %

CONSOLIDATED NET INCOME 840 2,183 2,164 (1,343) (62) % 19 1 %

CONSOLIDATED NET INCOME 4,068 840 2,183 3,228 NM (1,343) (62) %

Net income attributable to noncontrolling interests 122 105 32 (17) (16) % (73) NM

NET INCOME ATTRIBUTABLE TO CUMMINS INC .

$ 735 $ 2,151 $ 2,131 $ (1,416) (66) % $ 20 1 %

$ 3,946 $ 735 $ 2,151 $ 3,211 NM $ (1,416) (66) %

Diluted earnings per common share attributable to Cummins Inc.

$ 5.15 $ 15.12 $ 14.61 $ (9.97) (66) % $ 0.51 3 %

$ 28.37 $ 5.15 $ 15.12 $ 23.22 NM $ (9.97) (66) %

"NM" - not meaningful information

5 unchanged sentences

Research, development and engineering expenses 4.3 % 4.4 % 4.6 % 0.1 0.2

Net sales increased $6.0 billion, primarily driven by the following:

• Components segment sales increased 38 percent largely due to axles and brakes sales from the Meritor acquisition.

• Distribution segment sales increased 15 percent due to higher demand across all product lines, especially in North America.

• Engine segment sales increased 7 percent principally due to stronger heavy-duty and medium-duty truck demand in North America.

• Power Systems segment sales increased 13 percent primarily due to higher demand in power generation markets.

These increases were partially offset by unfavorable foreign currency fluctuations of 1 percent of total sales, primarily in the Chinese renminbi and Indian rupee, partially offset by the Euro.

Net sales increased $37 million, primarily driven by the following:

• Distribution segment sales increased 11 percent primarily due to higher demand in power generation markets, especially in North America and Europe.

• Power Systems segment sales increased 13 percent primarily due to higher demand in power generation markets, especially in North America and China.

• Engine segment sales were flat as stronger demand in North American medium-duty truck markets was offset by lower demand in North American pick-up truck and heavy-duty truck markets and weaker demand in global construction markets.

These increases were partially offset by decreased Components segment sales of 13 percent mainly due to the divestiture of Atmus on March 18, 2024.

Sales to international markets (excluding the U.S.

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compensation and related expenses, including variable compensation, salaries and fringe benefits;

depreciation on

production equipment and facilities and amortization of technology intangibles;

depreciation on production equipment and facilities and amortization of technology intangibles;

estimated costs of warranty programs and campaigns;

5 unchanged sentences

repairs and maintenance;

production and warehousing facility property insurance;

rent for production facilities;

charges for the write-downs of inventories in Russia and other production overhead.

Gross margin increased $1.5 billion and increased 0.3 points as a percentage of sales.

The increase in gross margin and gross margin as a percentage of sales was mainly due to favorable pricing and higher volumes (including sales of axles and brakes from the Meritor acquisition), partially offset by higher compensation expenses.

production and warehousing facility property insurance and rent for production facilities and other production overhead.

Cost of sales in 2024 included $112 million of inventory write-downs and severance in our Accelera segment.

See NOTE 22, "ACCELERA STRATEGIC REORGANIZATION ACTIONS," to our Consolidated Financial Statements for additional information.

Gross margin increased $190 million and increased 0.5 points as a percentage of sales.

The increases were mainly due to favorable pricing and higher volumes, partially offset by the divestiture of Atmus, higher compensation expenses and increased product coverage.

The provision for base warranties issued as a percentage of sales was 1.9 percent in 2024 and 1.8 percent in 2023.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $646 million, primarily due to higher compensation expenses and higher consulting expenses.

Compensation and related expenses include variable compensation, salaries and fringe benefits.

Overall, selling, general and administrative expenses, as a percentage of sales, increased to 9.8 percent in 2023 from 9.6 percent in 2022, as selling, general and administrative expenses increased at a faster rate than net sales.

Selling, general and administrative expenses decreased $58 million and decreased 0.2 points as a percentage of sales.

The decreases were primarily due to lower compensation expenses.

Compensation and related expenses include salaries, fringe benefits and variable compensation.

Research, Development and Engineering Expenses

Research, development and engineering expenses increased $222 million, principally due to higher compensation costs.

Compensation and related expenses include variable compensation, salaries and fringe benefits.

Overall, research, development and engineering expenses, as a percentage of sales, decreased to 4.4 percent in 2023 from 4.6 percent in 2022, as research, development and engineering expenses increased at a slower rate than net sales.

Research activities continue to focus on development of new products and improvements of current technologies to meet future emission standards around the world, improvements in fuel economy performance of diesel and natural gas-powered engines and related components, as well as development activities around hydrogen engine solutions, battery electric, fuel cell electric and hydrogen production technologies.

Research, development and engineering expenses decreased $37 million and decreased 0.1 points as a percentage of sales.

The decreases were mainly due to lower spending on prototypes and decreased compensation expenses.

Compensation and related expenses include salaries, fringe benefits and variable compensation.

Research activities continue to focus on development of new products and improvements of current technologies to meet future emission standards around the world, improvements in fuel economy performance of diesel and natural gas-powered engines and related components, as well as development activities around electrified power systems with innovative components and systems including battery and electric power technologies and hydrogen production technologies.

Equity, Royalty and Interest Income From Investees

Equity, royalty and interest income from investees increased $134 million, mainly due to the absence of the $28 million impairment of our Russian joint venture with KAMAZ, higher earnings at Dongfeng Cummins Engine Co., Ltd., Komatsu Cummins Chile, Ltda.

and Beijing Foton Cummins Engine Co., Ltd., higher royalty and interest income from investees and increased joint venture earnings from the Meritor acquisition.

See NOTE 4, "INVESTMENTS IN EQUITY INVESTEES," and NOTE 22, "RUSSIAN OPERATIONS," to our Consolidated Financial Statements for additional information.

Equity, royalty and interest income from investees decreased $88 million, primarily due to lower royalty and interest income from investees, start-up costs at Amplify Cell Technologies LLC, the absence of earnings from joint ventures associated with the divestiture of Atmus and $17 million of write-downs related to the Accelera segment, partially offset by higher earnings at Chongqing Cummins Engine Co., Ltd.

See NOTE 3, "INVESTMENTS IN EQUITY INVESTEES," and NOTE 22, "ACCELERA STRATEGIC REORGANIZATION ACTIONS," to our Consolidated Financial Statements for additional information.

Other Operating Expense, Net

Other operating (expense) income, net was as follows:

Other operating expense, net was as follows:

Years ended December 31,

In millions 2024 2023

Agreement in Principle (1)

$ (2,036) $ —

Accelera strategic reorganization actions (1)

Amortization of intangible assets (129) (133)

Loss on write-off of assets (17) (9)

Russian suspension costs (2)

Asset impairments and other charges — (36)

Flood damage expenses (10) —

Royalty income, net 8 29

Settlement Agreements (2)

Other, net (27) 11

Total other operating expense, net $ (346) $ (2,138)

(1) See NOTE 2, "AGREEMENT IN PRINCIPLE," to our Consolidated Financial Statements for additional information.

(2) See NOTE 22, "RUSSIAN OPERATIONS," to our Consolidated Financial Statements for additional information.

(1) See NOTE 22, "ACCELERA STRATEGIC REORGANIZATION ACTIONS," to our Consolidated Financial Statements for additional information.

(2) See NOTE 14, "COMMITMENTS AND CONTINGENCIES," to our Consolidated Financial Statements for additional information.

Interest Expense

Interest expense increased $176 million, primarily due to higher weighted-average term loan borrowings and increased interest rates.

Interest expense decreased $5 million, primarily due to lower average debt balances.

Other Income, Net

Other income (expense), net was as follows:

Other income, net was as follows:

Years ended December 31,

In millions 2024 2023

Gain related to divestiture of Atmus (1)

Non-service pension and OPEB income 112 125

Interest income 87 95

Gain (loss) on corporate owned life insurance 26 (102)

Gain (loss) on marketable securities, net 15 (7)

Gain on sale of marketable securities, net 8 15

Gain on corporate-owned life insurance 6 26

Foreign currency loss, net (41) (30)

1 unchanged sentence

Total other income, net $ 1,523 $ 240

(1) See NOTE 21, "ATMUS INITIAL PUBLIC OFFERING (IPO) AND DIVESTITURE," to our Consolidated Financial Statements for additional information.

Income Tax Expense

Our effective tax rate for 2024 was 17.0 percent compared to 48.3 percent for 2023.

The year ended December 31, 2023, contained unfavorable net discrete items of $397 million, primarily due to $398 million in the fourth quarter related to the $2.0 billion charge from the Agreement in Principle, $22 million of unfavorable adjustments for uncertain tax positions and $3 million of net unfavorable other discrete tax items, partially offset by $21 million of favorable return to provision adjustments and $5 million of favorable share-based compensation tax benefit.

The year ended December 31, 2022, contained discrete tax items that netted to zero, primarily due to $31 million of favorable changes in accrued withholding taxes, $29 million of favorable changes in tax reserves, $15 million of favorable valuation allowance adjustments and $9 million of favorable other net discrete items, offset by $69 million of unfavorable tax costs associated with internal restructuring ahead of the planned separation of Atmus and $15 million of unfavorable return to provision adjustments related to the 2021 filed tax returns.

The change in effective tax rate for the year ended December 31, 2023, versus year ended December 31, 2022, was primarily due to the Agreement in Principle, of which $1.732 billion (primarily related to penalties) was non-deductible for tax purposes, jurisdictional mix of pre-tax income and actual and planned repatriations of earnings back to the U.S.

See NOTE 2, "AGREEMENT IN PRINCIPLE," to our Consolidated Financial Statements for additional information.

The year ended December 31, 2024, contained net favorable discrete tax items primarily due to the $1.3 billion non-taxable gain on the Atmus split-off.

Other discrete tax items were net favorable by $59 million, primarily due to $52 million of favorable return to provision adjustments, $22 million of favorable share-based compensation tax benefits, $21 million of favorable adjustments related to audit settlements and $20 million of favorable adjustments from tax return amendments, partially offset by $50 million of unfavorable adjustments related to Accelera strategic reorganization actions and a net $6 million of other unfavorable adjustments.

See NOTE 21, "ATMUS INITIAL PUBLIC OFFERING (IPO) AND DIVESTITURE," and NOTE 22, "ACCELERA STRATEGIC REORGANIZATION ACTIONS" to our Consolidated Financial Statements for additional information.

The year ended December 31, 2023, contained unfavorable net discrete items of $397 million, primarily due to $398 million in the fourth quarter related to the $2.0 billion charge from the Settlement Agreements, $22 million of unfavorable adjustments for uncertain tax positions and $3 million of net unfavorable other discrete tax items, partially offset by $21 million of favorable return to provision adjustments and $5 million of favorable share-based compensation tax benefits.

The change in the effective tax rate for the year ended December 31, 2024, versus year ended December 31, 2023, was primarily due to the absence of the Settlement Agreements charge and the non-taxable gain on the Atmus split-off.

Our effective tax rate for 2025 is expected to approximate 24.5 percent, excluding any discrete tax items that may arise.

1 unchanged sentence

Noncontrolling interests eliminate the income or loss attributable to non-Cummins ownership interests in our consolidated entities.

Noncontrolling interests in income of consolidated subsidiaries increased $73 million principally due to higher earnings at Cummins India Limited and Eaton Cummins Joint Venture, as well as earnings attributable to the divested, noncontrolling interest in Atmus.

For prior year results of operations comparisons to 2021 see the Results of Operations section of our 2022 Form 10-K .

Noncontrolling interests in income of consolidated subsidiaries increased $17 million principally due to higher earnings at Cummins India Limited and the absence of losses at Hydrogenics Corporation resulting from the June 2023 acquisition, partially offset by lower earnings at Eaton Cummins Joint Venture and the divestiture of Atmus.

For all prior year segment results comparisons to 2022 see the Results of Operations section of our 2023 Form 10-K .

Comprehensive Income - Foreign Currency Translation Adjustment

The foreign currency translation adjustment was a net gain of $92 million and net loss of $384 million for the years ended December 31, 2023 and 2022, respectively.

The foreign currency translation adjustment was a net loss of $276 million and net gain of $92 million for the years ended December 31, 2024 and 2023, respectively.

The details were as follows:

2 unchanged sentences

dollar Translation adjustment Primary currency driver vs.

Wholly-owned subsidiaries $ 118 British pound and Brazilian real, partially offset by Chinese renminbi $ (250) Chinese renminbi and Indian rupee

Equity method investments (23) Chinese renminbi, partially offset by Brazilian real (94) Chinese renminbi

Consolidated subsidiaries with a noncontrolling interest (3) Chinese renminbi (40) Indian rupee

Wholly-owned subsidiaries $ (245) Brazilian real, Chinese renminbi, Euro and Indian rupee $ 118 British pound and Brazilian real, partially offset by Chinese renminbi

Equity method investments (15) Chinese renminbi and Brazilian real, partially offset by Indian rupee (23) Chinese renminbi, partially offset by Brazilian real

Consolidated subsidiaries with a noncontrolling interest (16) Indian rupee (3) Chinese renminbi

Total $ (276) $ 92

For prior year foreign currency translation adjustment comparisons to 2021 see the Results of Operations section of our 2022 Form 10-K .

For all prior year foreign currency translation adjustment results comparisons to 2022 see the Results of Operations section of our 2023 Form 10-K .

OPERATING SEGMENT RESULTS

On May 26, 2023, with the IPO, we changed the name of our Components' filtration business to Atmus.

Our Components segment now consists of the following businesses:

axles and brakes, emission solutions, engine components, Atmus, automated transmissions and software and electronics.

The Russian portion of prior period CIS sales moved to the Europe region.

In March 2023, we rebranded our New Power segment as "Accelera" to better represent our commitment to zero-emission technologies.

In addition, we moved our NPROXX joint venture from the Accelera segment to the Engine segment, which adjusted both the equity, royalty and interest income from investees and segment EBITDA line items for the current and prior year.

We started to report results for the changes within our operating segments effective January 1, 2023, and reflected these changes in the historical periods presented.

See NOTE 23, "FORMATION OF ATMUS AND IPO," to our Consolidated Financial Statements for additional information about the Atmus IPO.

Our reportable operating segments consist of the Components, Engine, Distribution, Power Systems and Accelera segments.

Our reportable operating segments consist of the Engine, Components, Distribution, Power Systems and Accelera segments.

This reporting structure is organized according to the products and markets each segment serves.

2 unchanged sentences

Segment amounts exclude certain expenses not specifically identifiable to segments.

Following is a discussion of results for each of our operating segments.

For all prior year segment results comparisons to 2022 see the Results of Operations section of our 2023 Form 10-K .

Components Segment Results

Financial data for the Components segment was as follows:

Favorable/(Unfavorable)

Years ended December 31, 2023 vs.

2022 2022 vs.

In millions 2023 2022 2021 Amount Percent Amount Percent

External sales $ 11,531 $ 7,847 $ 5,932 $ 3,684 47 % $ 1,915 32 %

Intersegment sales 1,878 1,889 1,733 (11) (1) % 156 9 %

Total sales 13,409 9,736 7,665 3,673 38 % 2,071 27 %

Research, development and engineering expenses 387 309 307 (78) (25) % (2) (1) %

Equity, royalty and interest income from investees 97 71 50 26 37 % 21 42 %

Interest income 31 12 5 19 NM 7 NM

Russian suspension costs (1)

— 5 — 5 100 % (5) NM

Segment EBITDA 1,840 (2)

1,180 494 37 % 166 14 %

Percentage Points Percentage Points

Segment EBITDA as a percentage of total sales 13.7 % 13.8 % 15.4 % (0.1) (1.6)

"NM" - not meaningful information

(1) See NOTE 22, "RUSSIAN OPERATIONS," to our Consolidated Financial Statements for additional information.

(2) Includes costs associated with the IPO and separation of Atmus of $78 million.

(3) Includes $83 million of costs related to the acquisition and integration of Meritor and $28 million of costs associated with the separation of Atmus.

As noted above, the descriptions of the two new businesses are as follows:

• Engine components - We design, manufacture and market turbocharger, fuel system and valvetrain technologies for light-duty, mid-range, heavy-duty and high-horsepower markets across North America, China, Europe and India.

• Software and electronics - We develop, supply and remanufacture control units, specialty sensors, power electronics, actuators and software for on-highway, off-highway and power generation applications.

We primarily serve markets in the Americas, China, India and Europe.

Sales for our Components segment by business, including adjusted prior year balances for the changes noted above, were as follows:

Favorable/(Unfavorable)

Years ended December 31, 2023 vs.

2022 2022 vs.

In millions 2023 2022 2021 Amount Percent Amount Percent

Axles and brakes $ 4,822 $ 1,879 $ — $ 2,943 NM $ 1,879 NM

Emission solutions 3,835 3,494 3,499 341 10 % (5) — %

Engine components 2,189 2,007 2,009 182 9 % (2) — %

Atmus 1,629 1,557 1,438 72 5 % 119 8 %

Automated transmissions 714 593 478 121 20 % 115 24 %

Software and electronics 220 206 241 14 7 % (35) (15) %

Total sales $ 13,409 $ 9,736 $ 7,665 $ 3,673 38 % $ 2,071 27 %

"NM" - not meaningful information

Components segment sales increased $3.7 billion across all businesses.

The following were the primary drivers by business:

• Axles and brakes sales increased $2.9 billion mainly due to the Meritor acquisition on August 3, 2022.

• Emission solutions sales increased $341 million principally due to stronger demand in North America and China.

• Engine components sales increased $182 million primarily due to higher demand in China.

Segment EBITDA

Components segment EBITDA increased $494 million, mainly due to higher volumes (including sales of axles and brakes from the Meritor acquisition), favorable pricing, the absence of the Meritor acquisition and integration costs and lower freight costs, partially offset by higher compensation expenses.

Engine Segment Results

12 unchanged sentences

Russian suspension costs

— 33 100 % (33) NM

— — % 33 100 %

Segment EBITDA 1,653 1,630 1,535 23 1 % 95 6 %

1 unchanged sentence

Segment EBITDA as a percentage of total sales 14.1 % 14.0 % 14.0 % 0.1 —

"NM" - not meaningful information

(1) Includes a $28 million impairment of our joint venture with KAMAZ and $3 million of royalty charges as part of our costs associated with the indefinite suspension of our Russian operations.

(1) Included a $28 million impairment of our joint venture with KAMAZ and $3 million of royalty charges as part of our costs associated with the indefinite suspension of our Russian operations.

See NOTE 24, "RUSSIAN OPERATIONS," to our Consolidated Financial Statements for additional information.

(2) Included $31 million of Russian suspension costs reflected in the equity, royalty and interest income from investees line above.

See NOTE 24, "RUSSIAN OPERATIONS," to our Consolidated Financial Statements for additional information.

(3) Includes $31 million of Russian suspension costs reflected in the equity, royalty and interest income from investees line above.

Sales for our Engine segment by market were as follows:

20 unchanged sentences

Total unit shipments 632,600 647,500 631,900 (14,900) (2) % 15,600 2 %

Engine segment sales increased $739 million across most markets.

The following were the primary drivers by market:

• Heavy-duty truck sales increased $552 million principally due to higher demand, especially in North America (with shipments up 12 percent) and China.

• Medium-duty truck and bus sales increased $210 million mainly due to higher demand, especially in North America with medium-duty truck engine shipments up 11 percent.

The increases were partially offset by decreased off-highway sales of $47 million primarily due to lower demand in global agriculture markets.

Engine segment sales increased $28 million.

The primary driver by market was an increase in medium-duty truck and bus sales of $496 million mainly due to higher demand, especially in North America with medium-duty truck engine shipments up 16 percent, and favorable pricing.

The increase was partially offset by the following:

• Light-duty automotive sales decreased $167 million primarily due to lower demand in North American pick-up truck markets with shipments down 15 percent, partially offset by favorable pricing.

• Heavy-duty truck sales decreased $155 million principally due to weaker demand in North America with shipments down 8 percent.

• Off-highway sales decreased $146 million primarily due to lower demand in global construction markets, especially in China and Western Europe.

Segment EBITDA

Engine segment EBITDA increased $95 million, primarily due to favorable pricing, partially offset by higher compensation expenses and unfavorable mix.

Engine segment EBITDA increased $23 million, primarily due to favorable pricing, partially offset by lower volumes, increased product coverage, higher compensation expenses, higher supply chain related costs and lower joint venture technology fees.

Components Segment Results

On March 18, 2024, we completed the divestiture of our remaining 80.5 percent ownership of Atmus common stock through a tax-free split-off.

See NOTE 21, "ATMUS INITIAL PUBLIC OFFERING (IPO) AND DIVESTITURE," to our Consolidated Financial Statements for additional information.

Financial data for the Components segment was as follows:

Favorable/(Unfavorable)

Years ended December 31, 2024 vs.

2023 2023 vs.

In millions 2024 2023 2022 Amount Percent Amount Percent

External sales $ 9,894 $ 11,531 $ 7,847 $ (1,637) (14) % $ 3,684 47 %

Intersegment sales 1,785 1,878 1,889 (93) (5) % (11) (1) %

Total sales 11,679 13,409 9,736 (1,730) (13) % 3,673 38 %

Research, development and engineering expenses 328 387 309 59 15 % (78) (25) %

Equity, royalty and interest income from investees 64 97 71 (33) (34) % 26 37 %

Interest income 25 31 12 (6) (19) % 19 NM

Russian suspension costs (1)

— — 5 — — % 5 100 %

Segment EBITDA 1,591 (2)

(249) (14) % 494 37 %

Percentage Points Percentage Points

Segment EBITDA as a percentage of total sales 13.6 % 13.7 % 13.8 % (0.1) (0.1)

"NM" - not meaningful information

(1) See NOTE 24, "RUSSIAN OPERATIONS," to our Consolidated Financial Statements for additional information.

(2) Included $21 million and $78 million of costs associated with the divestiture of Atmus for the years ended December 31, 2024 and 2023, respectively.

(3) Included $83 million of costs related to the acquisition and integration of Meritor and $28 million of costs associated with the divestiture of Atmus.

Beginning in the second quarter of 2024, we realigned certain businesses within our Components segment to be consistent with how our segment leader now monitors performance.

We reorganized the businesses to combine the engine components and software and electronics businesses into the newly formed components and software business.

In addition, we rebranded our axles and brakes business as drivetrain and braking systems.

We began reporting results for these changes within our Components segment effective April 1, 2024, and reflected these changes in the historical periods presented.

The change had no impact on our consolidated results.

Sales for our Components segment by business were as follows:

Favorable/(Unfavorable)

Years ended December 31, 2024 vs.

2023 2023 vs.

In millions 2024 2023 2022 Amount Percent Amount Percent

Drivetrain and braking systems $ 4,733 $ 4,822 $ 1,879 $ (89) (2) % $ 2,943 NM

Emission solutions 3,601 3,835 3,494 (234) (6) % 341 10 %

Components and software 2,404 2,409 2,213 (5) — % 196 9 %

Automated transmissions 588 714 593 (126) (18) % 121 20 %

Atmus 353 (1)

1,629 1,557 (1,276) (78) % 72 5 %

Total sales $ 11,679 $ 13,409 $ 9,736 $ (1,730) (13) % $ 3,673 38 %

"NM" - not meaningful information

(1) Included sales through the March 18, 2024, divestiture.

Components segment sales decreased $1.7 billion across all businesses.

The following were the primary drivers by business:

• Sales decreased $1.3 billion due to the Atmus divestiture on March 18, 2024.

• Emission solutions sales decreased $234 million principally due to lower demand in China.

Segment EBITDA

Components segment EBITDA decreased $249 million, primarily due to the divestiture of Atmus.

Distribution Segment Results

9 unchanged sentences

Equity, royalty and interest income from investees 90 97 77 (7) (7) % 20 26 %

Interest income 34 16 7 18 NM 9 NM

Interest income 37 34 16 3 9 % 18 NM

Russian suspension costs (1)

— 54 — 54 100 % (54) NM

— — 54 — — % 54 100 %

Segment EBITDA 1,378 1,209 888 169 14 % 321 36 %

3 unchanged sentences

(1) See NOTE 24, "RUSSIAN OPERATIONS," to our Consolidated Financial Statements for additional information.

Sales for our Distribution segment by region, including adjusted prior year balances for the changes noted above, were as follows:

Sales for our Distribution segment by region, were as follows:

Favorable/(Unfavorable)

6 unchanged sentences

China 478 430 355 48 11 % 75 21 %

Africa and Middle East 294 251 278 43 17 % (27) (10) %

India 317 270 220 47 17 % 50 23 %

Africa and Middle East 268 294 251 (26) (9) % 43 17 %

Latin America 267 225 210 42 19 % 15 7 %

7 unchanged sentences

Power generation 3,972 2,509 1,774 1,463 58 % 735 41 %

Engines 1,997 1,776 1,499 221 12 % 277 18 %

Service 1,753 1,672 1,561 81 5 % 111 7 %

Engines 1,679 1,997 1,776 (318) (16) % 221 12 %

Total sales $ 11,384 $ 10,249 $ 8,929 $ 1,135 11 % $ 1,320 15 %

Distribution segment sales increased $1.3 billion.

The primary driver was an increase in North American sales of $1.1 billion due to higher demand in all product lines, especially in power generation markets due to commercial and data center demand.

The increase was partially offset by unfavorable foreign currency fluctuations, primarily the Australian dollar, Canadian dollar, Chinese renminbi and South African rand.

Distribution segment sales increased $1.1 billion and increased across most regions.

The following were the primary drivers by regions:

• North American sales increased $544 million principally due to higher demand in power generation markets, especially data center and commercial markets, partially offset by lower demand for engines and aftermarket products.

• European sales increased $331 million mainly due to favorable demand in power generation markets.

• Asia Pacific sales increased $149 million primarily due to strong demand in power generation markets, especially data center markets and service volume.

Segment EBITDA

Distribution segment EBITDA increased $321 million, primarily due to increased volumes and favorable mix, partially offset by higher compensation expenses.

Distribution segment EBITDA increased $169 million, primarily due to favorable pricing, partially offset by higher compensation expenses.

Power Systems Segment Results

11 unchanged sentences

Russian suspension costs (1)

— 19 — 19 100 % (19) NM

— — 19 — — % 19 100 %

Segment EBITDA 1,180 836 596 344 41 % 240 40 %

1 unchanged sentence

Segment EBITDA as a percentage of total sales 18.4 % 14.7 % 11.8 % 3.7 2.9

"NM" - not meaningful information

(1) See NOTE 24, "RUSSIAN OPERATIONS," to our Consolidated Financial Statements for additional information.

8 unchanged sentences

Total sales $ 6,408 $ 5,673 $ 5,033 $ 735 13 % $ 640 13 %

Power Systems segment sales increased $640 million across all product lines.

The following were the primary drivers by product line:

• Power generation sales increased $550 million mainly due to higher demand in North America, India, Asia Pacific and the Middle East.

• Industrial sales increased $82 million principally due to higher sales of whole goods, partially offset by lower parts sales, especially in global mining markets.

Power Systems segment sales increased $735 million, primarily due to improved global power generation sales of $645 million, especially in data center markets.

Segment EBITDA

Power Systems segment EBITDA increased $240 million, primarily due to favorable pricing and higher volumes, partially offset by higher compensation expenses.

Power Systems segment EBITDA increased $344 million, primarily due to favorable pricing and higher volumes, partially offset by higher compensation expenses and increased product coverage.

Accelera Segment Results

Total charges for these strategic reorganization actions were $312 million.

See NOTE 22, "ACCELERA STRATEGIC REORGANIZATION ACTIONS," to our Consolidated Financial Statements for additional information.

Financial data for the Accelera segment was as follows:

7 unchanged sentences

Research, development and engineering expenses 226 (1)

Equity, royalty and interest (loss) income from investees (15) (2) 2 (13) NM (4) NM

203 171 (23) (11) % (32) (19) %

Equity, royalty and interest loss from investees (50) (1)

(15) (2) (35) NM (13) NM

Interest income 1 2 — (1) (50) % 2 NM

Segment EBITDA (764) (1)

(443) (334) (321) (72) % (109) (33) %

"NM" - not meaningful information

Accelera segment sales increased 79 percent mainly due to incremental sales of central drive systems, e-axles and accessory systems since the acquisitions of Siemens' Commercial Vehicle Propulsion business and Meritor's electric powertrain business, as well as improved electrified components sales.

(1) Included $2 million of charges in research, development and engineering expenses, $17 million of charges in equity, royalty and interest loss from investees and $312 million of charges in EBITDA, all related to strategic reorganization actions in the fourth quarter of 2024.

See NOTE 22, "ACCELERA STRATEGIC REORGANIZATION ACTIONS," to our Consolidated Financial Statements for additional information.

Accelera segment sales increased $60 million mainly due to improved sales of electrolyzers, partially offset by lower electrified powertrain sales.

Our outlook reflects the following positive trends and challenges to our business that could impact our revenue and earnings potential in 2025.

Positive Trends

• We expect demand for medium-duty trucks in North America to remain strong.

• We expect demand within our Power Systems business to remain strong, including the power generation and mining markets.

• We expect North American pick-up truck demand to improve.

• We believe market demand for trucks in India will continue to be strong.

• We expect demand within our Power Systems business to remain strong, including the power generation, mining and marine markets.

• We anticipate demand in our aftermarket business will continue to be robust, driven primarily by strong demand in our Engine business and Power Systems business.

We expect to be largely through the inventory management efforts and destocking that happened throughout the industry in the second half of 2023.

• We expect demand for trucks in China to remain stable or improve in 2024.

• We expect demand for heavy-duty trucks in North America to weaken modestly, particularly in the second half of 2024.

• Continued increases in material and labor costs, as well as other inflationary pressures, could negatively impact earnings.

• The financial implications resulting from our Agreement in Principle will negatively impact our liquidity in 2024 and will result in incremental interest expense for debt utilized in funding the civil penalty.

• We expect the ongoing separation of Atmus, our filtration business, into a stand-alone company will continue to result in incremental expenses.

• We anticipate demand in our aftermarket business will continue to be robust, driven primarily by strong demand in our Engine and Power Systems businesses.

• We expect demand for trucks in China to remain stable in 2025.

• We expect demand for medium-duty and heavy-duty trucks in North America to remain relatively weak in the first half of 2025.

• Increases in costs, tariffs, as well as other inflationary pressures, could negatively impact earnings.

• The potential for trade disruption, including embargoes, sanctions and export controls could negatively impact earnings.

LIQUIDITY AND CAPITAL RESOURCES

26 unchanged sentences

Effect of exchange rate changes on cash and cash equivalents (40) (68) 50 28 (118)

Net increase (decrease) in cash and cash equivalents $ 78 $ (491) $ (809) $ 569 $ 318

Net cash provided by operating activities increased $2.0 billion, primarily due to lower working capital requirements of $3.4 billion, partially offset by lower net income of $1.3 billion.

The lower working capital requirements resulted in a cash inflow of $2.4 billion compared to a cash outflow of $1.0 billion in the comparable period in 2022, mainly due to increased accrued expenses (resulting from the Agreement in Principle and higher variable compensation accruals) and favorable changes in inventories and accounts receivable, partially offset by unfavorable changes in accounts payable.

Net cash used in investing activities decreased $2.5 billion, principally due to lower acquisition activity of $2.9 billion, partially offset by higher capital expenditures of $297 million.

Net cash used in financing activities increased $3.8 billion, primarily due to higher net payments of commercial paper of $3.0 billion and lower proceeds from borrowings of $1.2 billion, partially offset by lower payments on borrowings and finance lease obligations of $414 million and the absence of repurchases of common stock of $374 million.

The effect of exchange rate changes on cash and cash equivalents decreased $118 million, primarily due to unfavorable fluctuations in the British pound, partially offset by the Chinese renminbi.

Net (decrease) increase in cash and cash equivalents $ (508) $ 78 $ (491) $ (586) $ 569

Net cash provided by operating activities decreased $2.5 billion, primarily due to higher working capital requirements of $4.6 billion, partially offset by higher net income of $3.2 billion.

The higher working capital requirements resulted in a cash outflow of $2.2 billion compared to a cash inflow of $2.4 billion in the comparable period in 2023, mainly due to $1.9 billion of payments required by the Settlement Agreements which were accrued in 2023.

Net income included a $1.3 billion non-cash gain on the divestiture of Atmus.

See NOTE 14, "COMMITMENTS AND CONTINGENCIES," and NOTE 21, "ATMUS INITIAL PUBLIC OFFERING (IPO) AND DIVESTITURE," to our Consolidated Financial Statements for additional information.

Net cash used in investing activities increased $139 million, primarily due to higher investments in equity investees of $228 million and cash associated with the Atmus divestiture of $174 million, partially offset by lower acquisition activity of $234 million.

Net cash used in financing activities decreased $2.0 billion, primarily due to higher proceeds from borrowings of $1.9 billion (principally related to our 2024 note issuance) and lower net payments of commercial paper of $542 million, partially offset by higher payments on borrowings and finance lease obligations of $432 million.

The effect of exchange rate changes on cash and cash equivalents increased $28 million, primarily due to favorable fluctuations in the British pound, partially offset by the Brazilian real.

For prior year liquidity comparisons see the Liquidity and Capital Resources section of our 2023 Form 10-K .

2 unchanged sentences

Cash provided by operations is our principal source of liquidity with $1.5 billion provided in 2024.

At December 31, 2023, our sources of liquidity included:

In February, we issued $2.25 billion in long-term debt to pay down higher cost debt, finance the Settlement Agreements payments and improve our overall liquidity.

Our sources of liquidity include the following:

December 31, 2024

1 unchanged sentence

International Primary location of international balances

Cash and cash equivalents $ 2,179 $ 971 $ 1,208 Australia, Belgium, China, Singapore Canada, Mexico

Cash and cash equivalents $ 1,671 $ 604 $ 1,067 Singapore, Australia, Mexico, China, United Kingdom, Belgium

Marketable securities (1)

3 unchanged sentences

Revolving credit facilities (2)

Atmus revolving credit facility (3)

International and other uncommitted domestic credit facilities $ 628

(1) The majority of marketable securities could be liquidated into cash within a few days.

(2) The five-year credit facility for $2.0 billion and the 364-day credit facility for $2.0 billion, maturing August 2026 and June 2024, respectively, are maintained primarily to provide backup liquidity for our commercial paper borrowings and general corporate purposes.

(2) The 5-year credit facility for $2.0 billion and the 364-day credit facility for $2.0 billion, maturing June 2029 and June 2025, respectively, are maintained primarily to provide backup liquidity for our commercial paper borrowings and general corporate purposes.

At December 31, 2024, we had $1.3 billion of commercial paper outstanding, which effectively reduced our available capacity under our revolving credit facilities to $2.7 billion.

(3) In February 2023, Atmus entered into a $400 million revolving credit facility, and at December 31, 2023, they had no outstanding borrowings under this facility.

Cash, Cash Equivalents and Marketable Securities

8 unchanged sentences

However, to help fund cash needs of the U.S.

or other international subsidiaries as they arise, we repatriate available cash from certain foreign subsidiaries whose earnings are not permanently reinvested when it is cost effective to do so.

On May 23, 2023, in connection with the Atmus IPO, Cummins issued approximately $350 million of commercial paper with certain lenders.

In exchange for the filtration business, Atmus also transferred to Cummins consideration of approximately $650 million.

The commercial paper issued and retired through the IPO proceeds, coupled with the $650 million received, was used for the retirement of our historical debt and payment of dividends.

See NOTE 23, "FORMATION OF ATMUS AND IPO," to the Consolidated Financial Statements for additional information.

or other international subsidiaries as they arise, we repatriate available cash from certain foreign subsidiaries whose earnings are not completely permanently reinvested when cost effective to do so.

Debt Facilities and Other Sources of Liquidity

On June 3, 2024, we entered into an amended and restated 5-year credit agreement that allows us to borrow up to $2.0 billion of unsecured funds at any time prior to June 3, 2029.

The credit agreement amended and restated the prior $2.0 billion 5-year credit agreement that would have matured on August 18, 2026.

On June 3, 2024, we entered into an amended and restated 364-day credit agreement that allows us to borrow up to $2.0 billion of unsecured funds at any time prior to June 2, 2025.

This credit agreement amended and restated the prior $1.5 billion 364-day credit facility that was scheduled to mature on August 16, 2023.

In connection with the 364-day credit agreement, effective June 5, 2023, we terminated our $500 million incremental 364-day credit agreement dated August 17, 2022.

Our committed credit facilities provide access up to $4.0 billion, including our $2.0 billion 364-day facility that expires June 3, 2024, and our $2.0 billion five-year facility that expires on August 18, 2026.

This credit agreement amended and restated the prior $2.0 billion 364-day credit facility that matured on June 3, 2024.

We received net proceeds of $2.2 billion.

See NOTE 12, "DEBT," to our Consolidated Financial Statements for additional information.

Our committed credit facilities provide access up to $4.0 billion from our $2.0 billion 364-day credit facility that expires on June 2, 2025, and our $2.0 billion 5-year facility that expires on June 3, 2029.

These revolving credit facilities are maintained primarily to provide backup liquidity for our commercial paper borrowings and general corporate purposes.

We intend to maintain credit facilities

at the current or higher aggregate amounts by renewing or replacing these facilities at or before expiration.

We intend to maintain credit facilities at the current or higher aggregate amounts by renewing or replacing these facilities at or before expiration.

The credit agreements include various financial covenants, including, among others, maintaining a net debt to capital ratio of no more than 0.65 to 1.0.

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There were no outstanding borrowings under these facilities at December 31, 2024.

Our committed credit facilities provide access up to $4.0 billion of unsecured, short-term promissory notes (commercial paper) pursuant to the Board authorized commercial paper programs.

Our committed credit facilities also provide access up to $4.0 billion of unsecured, short-term promissory notes (commercial paper) pursuant to the Board authorized commercial paper programs.

These programs facilitate the private placement of unsecured short-term debt through third-party brokers.

We intend to use the net proceeds from the commercial paper borrowings for acquisitions and general corporate purposes.

We intend to use the net proceeds from the commercial paper borrowings for general corporate purposes.

The total combined borrowing capacity under the revolving credit facilities and commercial paper programs should not exceed $4.0 billion.

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See NOTE 12, "DEBT," to our Consolidated Financial Statements for additional information .

In September 2023, we entered into a series of interest rate swaps with a total notional value of $500 million in order to trade a portion of the floating rate into a fixed rate on our term loan, due in 2025.

The maturity date of the interest rate swaps is August 1, 2025.

We designated the swaps as cash flow hedges.

The gains and losses on these derivative instruments are initially recorded in other comprehensive income and reclassified into earnings as interest expense in the Consolidated Financial Statements as each interest payment is accrued.

In 2021, we entered into a series of interest rate swaps to effectively convert our $500 million senior notes, due in 2025, from a fixed rate of 0.75 percent to a floating rate equal to the three-month LIBOR plus a spread.

We also entered into a series of interest rate swaps to effectively convert $765 million of our $850 million senior notes, due in 2030, from a fixed rate of 1.50 percent to a floating rate equal to the three-month LIBOR plus a spread.

The fallback protocol in our derivative agreements allowed for a transition from LIBOR to Secured Overnight Financing Rate (SOFR) in 2023.

The swaps were designated, and are accounted for, as fair value hedges.

In March 2023, we settled a portion of our 2021 interest rate swaps with a notional amount of $100 million.

The $7 million loss on settlement will be amortized over the remaining term of the related debt.

In 2019, we entered into $350 million of interest rate lock agreements, and in 2020 we entered into an additional $150 million of lock agreements to reduce the variability of the cash flows of the interest payments on a total of $500 million of fixed rate debt originally forecast to be issued in 2023 to replace our senior notes at maturity.

In 2022, we settled certain rate lock agreements with notional amounts totaling $150 million for $49 million in cash.

In 2023, we settled all remaining rate lock agreements with notional amounts totaling $350 million for $101 million.

The majority of the $150 million of gains on settlements will remain in other comprehensive income and will be amortized over the term of the debt anticipated to be issued in early 2024.

On February 15, 2023, certain of our subsidiaries entered into an amendment to the $1.0 billion credit agreement (Credit Agreement), consisting of a $400 million revolving credit facility and a $600 million term loan facility, in anticipation of the separation of our filtration business, extending the Credit Agreement termination date from March 30, 2023, to June 30, 2023.

On May 26, 2023, Atmus drew down the entire $600 million term loan facility and borrowed $50 million under the revolving credit facility for use as partial consideration for the filtration business.

Borrowings under the Credit Agreement mature in September 2027 (with quarterly payments on the term loan beginning in September 2024) and bear interest at varying rates, depending on the type of loan and, in some cases, the rates of designated benchmarks and the applicable borrower’s election.

Generally, U.S.

dollar-denominated loans bear interest at adjusted-term SOFR (which includes a 0.10 percent credit spread adjustment to term SOFR) for the applicable interest period plus a rate ranging from 1.125 percent to 1.75 percent.

The Credit Agreement contains customary events of default and financial and other covenants, including maintaining a net leverage ratio of 4.0 to 1.0 and a minimum interest coverage ratio of 3.0 to 1.0.

At December 31, 2023, there were no outstanding borrowings under the revolving credit facility and $600 million outstanding under the term loan facility.

As a well-known seasoned issuer, we filed an automatic shelf registration for an undetermined amount of debt and equity securities with the SEC on February 8, 2022.

Under this shelf registration we may offer, from time to time, debt securities, common stock, preferred and preference stock, depositary shares, warrants, stock purchase contracts and stock purchase units.

As a well-known seasoned issuer, we filed an automatic shelf registration for an undetermined amount of debt and equity securities with the Securities and Exchange Commission (SEC) on February 8, 2022, which expired on February 9, 2025.

Under this shelf registration we were able to offer debt securities, common stock, preferred and preference stock, depositary shares, warrants, stock purchase contracts and stock purchase units.

We plan to file a new shelf registration statement shortly after the filing of this annual report on Form 10-K to replace the expired automatic shelf registration statement.

Supply Chain Financing

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We then pay the financial intermediary the face amount of the invoice on the original due date, which generally have 60 to 90 day payment terms.

The maximum amount that we could have outstanding under the program was $512 million at December 31, 2023.

The maximum amount that we could have outstanding under these programs was $551 million at December 31, 2024.

We do not reimburse vendors for any costs they incur for participation in the program, their participation is completely voluntary and there are no assets pledged as security or other forms of guarantees provided for the committed payment to the finance provider or intermediary.

As a result, all amounts owed to the financial intermediaries are presented as accounts payable in our Consolidated Balance Sheets .

Amounts due to the financial

intermediaries reflected in accounts payable at December 31, 2023, were $199 million.

As a result, all amounts owed

to the financial intermediaries are presented as accounts payable in our Consolidated Balance Sheets .

Amounts due to the financial intermediaries reflected in accounts payable at December 31, 2024, were $142 million.

See NOTE 1, "SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES," to our Consolidated Financial Statements for additional information.

Agreement in Principle

In December 2023, we announced that we reached the Agreement in Principle with the EPA, CARB, DOJ and CA AG to resolve certain regulatory civil claims regarding our emissions certification and compliance process for certain engines primarily used in pick-up truck applications in the U.S.

Failure to comply with the terms and conditions of the Agreement in Principle will subject us to further stipulated penalties.

Of this amount, $1.938 billion relates to payments that are expected to be made in 2024.

See NOTE 2, "AGREEMENT IN PRINCIPLE," to our Consolidated Financial Statements for additional information.

Accounts Receivable Sales Program

In May 2024, we entered into an accounts receivable sales agreement with Wells Fargo Bank, N.A., to sell certain accounts receivable up to the Board approved limit of $500 million.

There was no activity under the program during the year ended December 31, 2024.

See NOTE 1, "SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES," to our Consolidated Financial Statements for additional information.

Settlement Agreements

In December 2023, we announced that we reached an agreement in principle with the EPA, CARB, DOJ and the California Attorney General’s Office to resolve certain regulatory civil claims regarding our emissions certification and compliance process for certain engines primarily used in pick-up truck applications in the U.S., which became final and effective in April 2024 (collectively, the Settlement Agreements).

We made $1.9 billion of payments required by the Settlement Agreements in the second quarter of 2024.

See NOTE 14, "COMMITMENTS AND CONTINGENCIES," to our Consolidated Financial Statements for additional information.

Total dividends paid to common shareholders in 2024, 2023 and 2022 were $969 million, $921 million and $855 million, respectively.

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Capital Expenditures

Capital expenditures were $1.2 billion, $916 million and $734 million in 2023, 2022 and 2021, respectively.

Capital expenditures were $1.2 billion, $1.2 billion and $916 million in 2024, 2023 and 2022, respectively.

We continue to invest in new product lines and targeted capacity expansions.

We plan to spend an estimated $1.4 billion to $1.5 billion in 2025 on capital expenditures with over 65 percent of these expenditures expected to be invested in North America.

Acquisitions for the year ended December 31, 2023, were as follows:

Entity Acquired (Dollars in millions) Date of Acquisition Additional Percent Interest Acquired Payments to Former Owners Acquisition Related Debt Retirements Total Purchase Consideration

Cummins France SA 10/31/23 100% $ 25 $ 5 $ 30

Faurecia 10/02/23 100% 210 — 210 (1)

Hydrogenics Corporation (Hydrogenics) 06/29/23 19% 287 48 335 (2)

Teksid Hierro de Mexico, S.A.

(Teksid MX) 04/03/23 100% 143 — 143 (3)

(1) Total purchase consideration included $30 million for the settlement of accounts payable that were treated as an operating cash outflow.

(2) Hydrogenics entered into three non-interest-bearing promissory notes with $175 million paid on July 31, 2023, and the remaining $160 million due in three installments through 2025.

(3) Total purchase consideration included $32 million for the settlement of accounts payable that were treated as an operating cash outflow.

See NOTE 24, "ACQUISITIONS," to our Consolidated Financial Statements for additional information.

Current Maturities of Short and Long-Term Debt

We had $1.3 billion of commercial paper outstanding at December 31, 2024, that matures in less than one year.

The maturity schedule of our existing long-term debt requires significant cash outflows in 2025 when our term loan and 0.75 percent senior notes are due.

Required annual long-term debt principal payments range from $67 million to $1.8 billion over the next five years.

The maturity schedule of our existing long-term debt includes $500 million of cash outflows in 2025 when our 0.75 percent senior notes are due.

Required annual long-term debt principal payments range from $66 million to $660 million over the next five years.

We intend to retain our strong investment credit ratings.

See NOTE 13, "DEBT," to the Consolidated Financial Statements for additional information.

See NOTE 12, "DEBT," to our Consolidated Financial Statements for additional information.

Our global pension plans, including our unfunded and non-qualified plans, were 115 percent funded at December 31, 2024.

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pension trusts' loss was 9.6 percent.

To better hedge its liabilities, our U.K.

pension plan sold a substantial portion of its private markets assets at a discount, which detracted from the investment performance.

We sponsor funded and unfunded domestic and foreign defined benefit pension plans.

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Defined contribution pension plans 126 130 110

These contributions may be made from trusts or company funds either to increase pension assets or to make direct benefit payments to plan participants.

We anticipate making total contributions of approximately $52 million to our global defined benefit pension plans in 2025.

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We intend to repurchase outstanding shares from time to time to enhance shareholder value.

Amplify Cell Technologies LLC Joint Venture

In September 2023, our Accelera business signed an agreement to form a joint venture, Amplify Cell Technologies LLC, with Daimler Truck, PACCAR and EVE Energy to accelerate and localize battery cell production and the battery supply chain in the U.S., including building a 21-gigawatt hour battery production facility in Marshall County, Mississippi.

The joint venture will manufacture battery cells for electric commercial vehicles and industrial applications.

The joint venture received all government approvals and began operations in May 2024, but is not expected to begin production until 2027.

As of December 31, 2024, we had contributed $211 million and our maximum remaining required contribution to the joint venture was $619 million, which could be reduced by future government incentives received by the joint venture.

The majority of the contribution is expected to be made by the end of 2028.

See NOTE 3, "INVESTMENTS IN EQUITY INVESTEES," to our Consolidated Financial Statements for additional information.

Future Uses of Cash

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Total $ 3,706 $ 9,672

(1) Includes principal payments and expected interest payments based on the terms of the obligations.

(1) Included principal payments and expected interest payments based on the terms of the obligations.

The contractual obligations reported above exclude our unrecognized tax benefits of $304 million as of December 31, 2024, which includes $187 million of current tax liabilities and $117 million of long-term deferred tax liabilities.

We are not able to reasonably estimate the period in which cash outflows relating to uncertain tax contingencies could occur.

See NOTE 5, "INCOME TAXES," to the Consolidated Financial Statements for additional information.

See NOTE 4, "INCOME TAXES," to our Consolidated Financial Statements for additional information.

Credit Ratings

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We assess our liquidity in terms of our ability to generate adequate cash to fund our operating, investing and financing activities.

We believe our access to capital markets, our existing cash and marketable securities, operating cash flow and revolving credit facilities provide us with the financial flexibility needed to make payments required by the Agreement in Principle, targeted capital expenditures, dividend payments, debt service obligations, projected pension obligations, common stock repurchases and fund acquisitions through 2024 and beyond.

We believe our access to capital markets, our existing cash and marketable securities, operating cash flow and revolving credit facilities provide us with the financial flexibility needed to fund targeted capital expenditures, dividend payments, debt service obligations, projected pension obligations, common stock repurchases, joint venture contributions and acquisitions through 2025 and beyond.

We continue to generate significant cash from operations and maintain access to our revolving credit facilities and commercial paper programs as noted above.

We anticipate making $1.938 billion of the payments required by the Agreement in Principle during 2024 through the use of our existing liquidity and access to debt markets.

APPLICATION OF CRITICAL ACCOUNTING ESTIMATES

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During the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill.

Any adjustments subsequent to the measurement period are recorded to our consolidated statements of income.

Any adjustments subsequent to the measurement period are recorded to our Consolidated Statements of Net Income .

See NOTE 23, "ACQUISITIONS," to our Consolidated Financial Statements for additional information about our recent business combinations.

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This process includes an extensive review of expectations for the long-term growth of our businesses and forecasted future cash flows.

In order to determine the valuation of our reporting units, we use either the market approach or the income approach using a discounted cash flow model.

In order to determine the valuation of our reporting units, we use either the income approach using a discounted cash flow model or the market approach.

Our income approach method uses a discounted cash flow model in which cash flows anticipated over several periods, plus a terminal value at the end of that time horizon, are discounted to their present value using an appropriate rate of return.

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Future changes in the judgments, assumptions and estimates that are used in our goodwill impairment testing, including discount rates or future operating results and related cash flow projections, could result in significantly different estimates of the fair values in the future.

An increase in discount rates, a reduction in projected cash flows or a combination of the two could lead to a reduction in the estimated fair values, which may result in impairment charges that could materially affect our financial statements in any given year.

We perform the goodwill impairment assessment as of the end of our fiscal third quarter.

While none of our reporting units recorded a goodwill impairment in 2023, we have two reporting units with material goodwill balances where the estimated fair value does not significantly exceed the carrying value, both of which are in our Components segment.

Our automated transmissions reporting unit (consisting solely of our joint venture with Eaton) has an estimated fair value that exceeds its carrying amount of $1.1 billion by approximately 7 percent.

Total goodwill in this reporting unit is $544 million at December 31, 2023.

We valued this reporting unit using an income approach based on its expected future cash flows.

The critical assumptions that factored into the valuation are the projections of revenue and gross margin of the business as well as the discount rate used to present value these future cash flows.

A 50 basis point increase in the discount rate would result in a 5 percent decline in the fair value of the reporting unit.

Our axles and brakes reporting unit, which consists of the legacy business acquired from Meritor in August 2022, has an estimated fair value that exceeds its carrying amount of $4.2 billion by approximately 12 percent.

Total goodwill in this reporting unit is $764 million at December 31, 2023.

We valued this reporting unit using an income approach based on future cash flows.

The critical assumptions that factored into the valuation are the projections of revenue and gross margin of the business as well as the discount rate used to present value these future cash flows.

A 50 basis point increase in the discount rate would result in a 5 percent decline in the fair value of the reporting unit.

An increase in discount rates, a reduction in projected

cash flows or a combination of the two could lead to a reduction in the estimated fair values, which may result in impairment charges that could materially affect our financial statements in any given year.

Effective October 31, 2024, we changed our annual goodwill impairment testing date for all reporting units from the last day of our fiscal third quarter to October 31 to better align with the timing of our annual long-term planning process.

Accordingly, management determined that the change in accounting principle is preferable.

This change was applied prospectively from October 31, 2024.

We determined that it is impracticable to objectively ascertain projected cash flows and related valuation estimates that would have been used as of each October 31 of prior reporting periods without the use of hindsight.

This change was not material to our Consolidated Financial Statements as it did not delay, accelerate or avoid any potential goodwill impairment charges.

To ensure that no lapse greater than twelve months occurred, we performed an impairment test, for all reporting units, as of the end of our 2024 fiscal third quarter and noted no impairment.

We completed our annual impairment testing as of October 31, 2024, and noted no impairment.

Accounting for Income Taxes

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plan assets averaged annualized returns of 5.74 percent over the prior ten years and resulted in approximately $473 million of actuarial losses in accumulated other comprehensive loss (AOCL) in the same period.

Based on the historical returns and forward-looking return expectations for capital markets, as plan assets continue to be de-risked, consistent with our investment policy, we believe our investment return assumption of 7.25 percent in 2024 for U.S.

Based on the historical returns and forward-looking return expectations for capital markets, we believe our investment return assumption of 7.00 percent in 2025 for U.S.

pension assets is reasonable and attainable.

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plans was a 9.6 percent loss for 2024.

We generated average annualized returns of 1.25 percent over ten years, resulting in approximately $532 million of actuarial losses in AOCL.

Our strategy with respect to our investments in pension plan assets is to be invested with a long-term outlook.

We generated average annualized losses of 1.31 percent over ten years, resulting in approximately $942 million of actuarial losses in AOCL.

with respect to our investments in pension plan assets is to be invested with a long-term outlook.

Based on the historical returns and forward-looking return expectations, we believe that an investment return assumption of 5.00 percent in 2025 for U.K.

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Investment description 2025 2024 2023 2025 2024 2023

2024 2023 2022 (1)

Liability matching 71.0 % 69.5 % 71.0 % 80.0 % 79.4 % 80.8 %

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Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %

(1) Pension plan assets allocations for 2022 exclude Meritor.

The Meritor U.S.

plan asset allocations at December 31, 2022, were 100 percent risk seeking.

The Meritor U.K.

plan asset allocations at December 31, 2022, were 70 percent liability matching and 30 percent risk seeking.

See NOTE 24, "ACQUISITIONS," to the Consolidated Financial Statements for additional information.

The differences between the actual return on plan assets and expected long-term return on plan assets are recognized in the asset value

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Net actuarial losses decreased our shareholders' equity by $34 million after-tax in 2024.

The loss is primarily due to unfavorable asset returns, partially offset by higher discount rates.

The loss is primarily due to unfavorable asset returns, partially offset by a favorable change in discount rates.

The table below sets forth the net periodic pension cost for the years ended December 31 and our expected cost for 2025.

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Net periodic pension cost $ 76 $ 34 $ 1 $ 19

We expect 2024 net periodic pension cost to increase compared to 2023, primarily due to unfavorable asset returns in the U.K., lower discount rates in the U.S.

We expect 2025 net periodic pension cost to increase compared to 2024, primarily due to unfavorable asset returns in the U.K.

and a lower expected rate of return in the U.S., partially offset by higher discount rates in the U.S.

The increase in net periodic pension cost in 2024 compared to 2023 was primarily due to unfavorable asset returns in the U.K., lower discount rates in the U.S.

and increased headcount from recent acquisitions, partially offset by a higher expected rate of return on assets in the U.S.

The decrease in net periodic pension cost in 2023 compared to 2022 was primarily due to the full year benefit of the Meritor pension plans added during the acquisition and a higher estimated return on assets in the U.S.

The decrease in net periodic pension cost in 2022 compared to 2021 was due to higher discount rates in the U.S.

and favorable actuarial experience in the U.S., partially offset by a lower expected rate of return in the U.K.

The decrease in net periodic pension cost in 2023 compared to 2022 was due primarily due to the full year benefit of the Meritor pension plans added during the acquisition and a higher estimated return on assets in the U.S.

The weighted-average discount rates used to develop our net periodic pension cost are set forth in the table below.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis